Karavelov was born in Koprivshtitsa. He began his education in a church school, but in 1850 he moved to the school of Nayden Gerov in Plovdiv. He was then sent by his father to study in a Greek school for two years, before transferring to a Bulgarian school, where he also studied Russian literature. He moved to Odrin for an apprenticeship, but he soon came back to Koprivshtitsa and was sent to Constantinople in 1856. There he developed a strong interest in politics and the Crimean War. At the same time, he studied the culture and ethnography of the region.

In 1857, Karavelov enrolled in the Faculty of History and Philology at the University of Moscow, where he fell under the influence of Russian revolutionary democrats, was placed under police surveillance in 1859, and took part in student riots in 1861. With a group of other your Bulgarian student radicals, he published a journal and started writing poetry and long short stories in Bulgarian, scholarly publications in Bulgarian ethnography and journalism in Russian. In 1867 he went to Belgrade as a correspondent for Russian newspapers, started publishing prose and journalism in Serbian, in 1868 was forced to move to Novi Sad, Austria-Hungary, for his contacts with the Serb opposition (led by Svetozar Marković), was arrested and spent time in a Budapest prison for alleged participation in a conspiracy, and in 1869 settled in Bucharest with the intent to start his own newspaper and to cooperate with the newly founded Bulgarian Scholarly Society (the future Bulgarian Academy of Sciences).

At his first newspaper Svoboda (Freedom) in Bucharest (1869–1873), we worked and became friends with poet and revolutionary Hristo Botev who devoted a poem to him. In 1870, Karavelov was elected chairman of the Bulgarian Revolutionary Central Committee, where he worked with Vasil Levski, the leader of the Internal Revolutionary Organization; he shared Levski's ideas of a democratic republic as the goal of the national revolution. Karavelov admired the political systems of Switzerland (which he believed was the model for the ethnically diverse Balkans) and the United States; he praised the American public education system, as well as the emancipated (in his opinion) status of American women.

In 1873–1874, Karavelov and Botev published a second newspaper, Nezavisimost (Independence). Although the older of the two, Karavelov, was the recognized master, both of them wrote a considerable body of very good professional journalism (sometimes it was hard to know who exactly authored the many unsigned materials), setting high standards for Bulgarian language and literature. Following the capture and execution of Levski in 1873, though, the disheartened Karavelov gradually abandoned his revolutionary zeal, attracting Botev's severe criticism, and started publishing a new Znanie (Knowledge) journal and popular science books.

Karavelov's works include the short novels Old Time Bulgarians (Bulgarian: „Българи от старо време“; Bulgari ot staro vreme, and Mommy's Boy (Bulgarian: „Мамино детенце“; Mamino detentse), considered among the first original Bulgarian novels. His younger brother Petko was a prominent figure in Bulgaria's political life in the late 19th century.